China Stocks Fall for First Time in Week on Producer-Price Drop

May 9 (Bloomberg) -- China’s stocks fell for the first time
in five days, led by energy and industrial companies, as a slump
in producer prices signaled demand is weakening in the world’s
second-biggest economy.

The producer-price reading “indicates the economic
recovery is weaker than expected as demand for industrial
products looks pretty sluggish,” said Wang Weijun, a strategist
at Zheshang Securities Co. in Shanghai. “The market needs to
digest profit taking after the recent rebound.”

The Shanghai Composite Index slipped 0.6 percent to
2,232.97 at the close. It closed yesterday at the highest level
since March 27 after official data showed exports grew faster
than estimated. Consumer prices rose 2.4 percent in April from a
year earlier, the National Bureau of Statistics reported today,
accelerating from a 2.1 percent gain a month earlier. That’s
still below the goverment’s inflation goal of 3.5 percent for
this year.

The Shanghai Composite has slumped 8.3 percent from a Feb.
6 high on concern slowing economic growth is hurting earnings.
The index trades at 9.6 times estimated earnings for this year,
compared with the seven-year average of 17.5, according to data
compiled by Bloomberg.

Today’s consumer inflation reading compares with the 2.3
percent median estimate of 40 analysts surveyed by Bloomberg
News and a 2.1 percent reading for March. The median projection
for producer prices was for a decline of 2.3 percent. Data
including industrial output and retail sales are due next week.

‘Difficult Time’

The drop in producer prices reflects falling commodity
prices as well as excess manufacturing capacity, Yao Wei, China
economist at Societe Generale SA in Hong Kong, said on Bloomberg
Television. Companies are having a “difficult time” raising
prices, which will keep affecting profit margins, she said.

The government has drafted plans to curb production
overcapacity and may strictly control new projects in industries
such as steel, cement and flat glass, the Shanghai Securities
News reported today, citing unidentified people.

The tolerance of decision makers for slowing growth will be
higher than the market’s expectation, the China Securities
Journal said in an editorial on the front-page of the newspaper
today. As long as economic growth is maintained at an annual
average of 7 percent, China will reach its goal of a “well-off
society” in 2020, it said.

Moutai Prices

China’s money-market rate snapped a three-day drop as the
central bank sold bills today for the first time since 2011,
draining cash from the financial system as accelerating yuan
gains spur capital inflows. The seven-day repurchase rate
climbed 12 basis points to 3.11 percent as of 2:54 p.m. in
Shanghai, while the yuan touched a 19-year high of 6.1336.

“The resumption of bill sales has killed off hopes of an
interest-rate cut,” said Fan Xiaoyang, a bond analyst at
Sealand Securities Co. in Shenzhen. “Short-term bond yields may
rise.”

Kweichow Moutai added 4.4 percent to 197.18 yuan, lead a
measure of consumer-staples to rise 1.2 percent for the biggest
gain among CSI 300’s 10 sub-indexes.

Rising Volumes

A 54 percent drop in wholesale prices for Moutai’s baijiu
liquor is luring wealthy people to stockpile for investment
purposes, Tong Xun, an analyst at Shenyin & Wanguo Securities
wrote in a report today. Wholesale prices have rebounded 30 yuan
from an April low of 870 yuan, it said.

Trading volumes in the Shanghai stock index were 11 percent
higher than the 30-day average, according to data compiled by
Bloomberg. Thirty-day volatility was at 17.1, compared with this
year’s average of 17.2, the data showed.

In U.S. trading, AutoNavi, a digital map content provider,
rallied the most on record and Baidu, owner of China’s most-used
search engine, rose to an almost three-month high.

AutoNavi has surged 40 percent over the past eight days to
trade at 16 times estimated profit, from a valuation of 12 on
April 26. That compares with an average multiple of 13 for the
China-US gauge.